Contrary to popular belief, the world’s electric vehicle revolution is not being driven by the Teslas or other big brands in the passenger car segment. If anything, the shift from fossil fuels to more sustainable forms of transportation could be arriving on two-wheels, which incidentally accounts for close to a third of global mobility.
Though the passenger car segment has attracted more attention, it is the universe of mopeds, scooters, motorbikes and motorcycles, accounting for about 30% of the world’s mobility, that create the essential link in the transportation network across South Asia, Southeast Asia and China. Sales topped about 45 million units during fiscal year 2021.
Pace of two-wheeler electrification needs to grow
A recent report from Mckinsey notes that only a small percentage of two-wheelers are electrified though many have entered the market. The two-wheeler market is projected to grow at a CAGR 8.7% though 2029 touch $218 billion in value. In India, only 4% of the two-wheeler sales were electric, though by 2030 total electric two-wheelers could touch 30% worldwide.
The report further notes that China and the developing world may focus on smaller machines that drive users to work or for local shopping. This is in contrast to North America and Europe where premium brands selling more than 500 cc products are in demand, though largely for recreational and sporting purposes.
Several among the established brands in these segments have been slow in electrification of their machines, with a handful set to launch their first EV models. This is an opportunity for new brands to enter a potentially lucrative segment though cost premiums and range challenges related to battery chemistry are real barriers to conversions.
Two-wheeler EVs drives impact on climate change
The study notes that the prevalent low electrification rate for two-wheelers could have a big impact on climate change. Across regions where two-wheelers are the main mode, they consume over 50% of the total fossil fuel and account for between 5-10% of carbon emissions. Countries struggling with net-zero emission targets need to focus on two-wheeler EVs.
Based on the experiences with the four-wheeler markets, government regulations supporting electric two-wheelers could ignite a major change and potentially stimulate sales, the Mckinsey report says, adding that China leads the world in EV adoption rates because of its government’s strong support for electrification of two-wheelers.
Unfortunately, the rate of electrification of the two-wheeler market is under 5% across all major geographies, indicating several challenges. These include higher acquisition costs, lower performance as against fossil fuel-led bikes, limited product options from manufacturers and lack of finance and charging ecosystems.
A disruption is on the way in the EV bike segment
However, Mckinsey’s report notes that the segment is poised for a disruption given the battery technology enhancements. The current energy density of lithium iron phosphate and nickel manganese cobalt batteries varies between 180 to 250 Wh/kg, which can create between 80 to 120 kms per charge.
Moreover, battery costs that are traditionally about 35% of the two-wheeler’s bill of material value, are also falling significantly as manufacturers attain economies of scale and production efficiencies. There is also a general shift towards lower-cost LFP batteries. Moreover, this segment is benefiting from regulatory initiatives such as consumer subsidies of 25% or more.
In terms of investments too, things are moving ahead. Between 2018 and 2022, investments in micro mobility rose to around $8 billion though the number of deals shrunk in the past years due to the pandemic. However, the median size of deals grew four-fold, from $1 million in 2018 to $4.23 million in 2022. Most of the investments pre-pandemic went to low-end two-wheelers though high-end vehicles are now in demand.
